TOP Ships Inc. (NASDAQ: TOPS) is having a relatively rough start to the trading session this morning after announcing a dilutive transaction that led to fear among investors. While the stock may be down, it’s not out. In fact, due to circumstances revolving around the company, the declines may represent an opportunity to get in on future gains. Today, we’ll talk about:
- The dilutive transaction;
- why the declines may represent an opportunity;
- what we’re seeing from TOPS stock; and
- what we’ll be watching for ahead.
TOPS Announces Offering
As mentioned above, TOP Ships is down early on in the trading session this morning after the company announced a dilutive transaction. In a press release issued early this morning, the company said that it has entered into a Securities Purchase Agreement. The agreement was signed with an institutional investor for the sale of 2 million shares of common stock at a purchase price of $1.50 per share. As a result of the transaction, TOPS will raise about $3 million.
Along with the common shares that are being issued, the company will issue warants to purchase up to an additional 3.5 million shares. The warrants will come with an exercise price of $1.50 per share and will have a term of four months. The company said that the transaction is expected to close on October 26, 2018.
It is estimated that after all fees are deducted, TOPS will bring in about $2.7 million in net proceeds. Once the funding is secured, $2.4 million will be used to pay off debt and the rest will be used for general corporate purposes.
Why This Transaction Presents An Opportunity
While offerings are just about always a concern. This transaction may represent a strong opportunity. In this case, the announcement brought the value of TOP Ships shares down, arguably to a discount. After all, there’s a big reason to be excited about the shipping sector. Recently, President Trump announced the end of the Postal Treaty. This treaty is more than a century old and provides subsdidies to shipments in the United States, keeping the cost of these shipments low. However, the postal treaty being terminated means that TOPS and others in the shipping sector may have an opportunity to increase their revenue. This has led to tremendous gains in value in the shipping sector as investors see opportunity ahead. It is possible that this offering and the declines it caused may have opened the door to get in at a discount with the opportunity for big gains ahead.
What We’re Seeing From The Stock
We know that the news moves the market, and it’s hard to argue that the news from TOP Ships was anything but positive. After all, dilutive transactions ultimately reduce the values of currently issued shares. So, while I do believe that the declines may present an opportunity for future growth, the stock is falling in the market today. Of course, our partners at Trade Ideas were the first to alert us to the gains. Currnetly (10:05), TOPS is trading at $1.68 per share after a loss of $0.03 per share or 1.75% thus far today.
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What We’ll Be Watching For Ahead
Moving forward, the CNA Finance team will continue to keep a close eye on TOPS. In particular, we’re interested in following the story surrounding the company’s moves to take advantage of potential opportunities during the change in climate in the shipping sector. Nonetheless, we’ll continue to follow the story closely and bring the news to you as it breaks!
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